Zee Entertainment Enterprises (ZEEL) has found a white knight in rival Sony with the latter agreeing to merge its India entertainment business with the beleaguered firm, thus creating India’s largest entertainment network with about $2 billion in revenues and 26 per cent viewership share. The ZEEL board announced on Wednesday that it had approved a non-binding term sheet with Sony Pictures Networks India to merge their operations, and that the promoters of Sony would invest $1.57 billion in the merged entity as growth capital. According to the indicative initial merger ratio, ZEEL shareholders will own approximately 47 per cent in the merged entity, while the promoters of Sony India will hold 53 per cent after the infusion of growth capital, it said in a statement. On the basis of the existing estimated equity values of ZEEL and Sony India, the indicative merger ratio would have been 61.25 per cent in favour of ZEEL. However, with the proposed infusion of growth capital, Zee’s stake is pegged at 47 per cent, it added. While the promoters of Sony will have the right to appoint the majority of directors to the board, Punit Goenka, chief executive officer and managing director of ZEEL, will become the CEO and MD of the combined entity. Goenka’s appointment, however, will be subject to the necessary approvals from the nomination remuneration committee, the board, and shareholders of the merged company, the firm said. In consideration of the existing promoters of ZEEL and their affiliates agreeing not to compete with the merged company, the promoters of Sony India will transfer around 2 per cent stake in such a way that the Subhash Chandra family will hold a total of 4 per cent in the merged entity. Consequently, Sony India will hold a 51 per cent stake in the merged entity, while Zee shareholders will cumulatively hold the remaining 49 per cent. According to the term sheet, Chandra, who set up India’s first private sector entertainment network, has the option to raise the stake up to 20 per cent. The family sold their stake in ZEEL to repay loans worth Rs 13,000 crore, taken from Indian banks for failed diversifications like infrastructure development. “We have engaged with Sony in the past and this deal was signed after several months of discussions with Sony,” Punit Goenka told an investor call in the evening. Geonka said the deal was subject to approvals from the Competition Commission of India and Sebi. The entire transaction is subject to an independent valuation conducted by both parties, ZEEL informed the stock exchanges before the market opened for trading. Reacting to the news, shares of ZEEL closed 32 per cent up at Rs 337 a share, giving it a total market valuation of Rs 32,378 crore. Analysts said the transaction would create a new media and entertainment giant in India with a turnover of up to Rs 15,000 crore. According to the ZEEL consolidated numbers, the company made a profit Rs 800 crore on revenues of Rs 7,730 crore in the fiscal ended March this year. ZEEL had cash on books of Rs 1,853 crore.

On the other hand, Sony Pictures Network India made a profit of Rs 976 crore on revenues of Rs 5,846 crore with cash on books of Rs 11,000 crore, as of March 2020. Sony India’s latest figures were not available.

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